Jeremy Hunt has been handed a lifeline over a nightmare recession after the Bank of England warned economic growth could shrink over the next two years. The Bank of England’s base rate will rise to three percent from 2.25 percent – the highest for 14 years, and decision-makers warned that more increases are likely. But the central bank also warned the UK could be on course for the longest recession since reliable records began nearly a century ago.
Gross domestic product (GDP) could shrink for every quarter over the next two years, with growth only visible again around the middle of 2024.
The BoE made clear this forecast is reliant on interest rates jumping to a high of 5.2 percent, which the Bank said it does not necessarily expect to happen.
This could instead be a more drawn-out recession but much less severe than the one seen during the financial crisis in 2008.
A recession is defined as when a country’s economy shrinks for two successive quarters.
The BoE said in its latest Monetary Policy Report: “There has been a material tightening in financial conditions, including the elevated path of market interest rates.
“In addition, high energy prices continue to weigh on spending, despite an assumption of some fiscal support for household energy bills over the next two years.
“As a result, the UK economy is expected to remain in recession throughout 2023 and 2024 H1, and GDP is expected to recover only gradually thereafter.”
The report added: “Compared with previous UK recessions of similar scales, GDP remains weak relative to its pre-recession level for a prolonged period in the MPC’s latest forecast, although the depth of the recession is much shallower for the projection conditioned on constant interest rates.”
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Chancellor Jeremy Hunt said the Government is committed to tackling the UK’s creaking public finances in order to limit the need for further big interest rate hikes.
He said: “The most important thing the British Government can do right now is to restore stability, sort out our public finances, and get debt falling so that interest rate rises are kept as low as possible.
“However, there are no easy options and we will need to take difficult decisions on tax and spending to get there.”
Mr Hunt will deliver his Autumn Statement to the House of Commons on November 17, but has warned tough decisions lie ahead in attempts to inject much-needed momentum into the UK economy.